Report – Peugeot talks with Dongfeng hindered

People familiar with the matter said that PSA’s plan to raise funds through a share sale have hit a snag as Dongfeng Motor Corp. seeks a smaller stake than first discussed.

The people, who asked not to be identified, discussing private talks, said Dongfeng is weighing buying only around 10 %, half the size of the original proposal. The Chinese company is more interested in expanding an existing industrial venture than buying a stake, they added.

Peugeot originally proposed a capital increase of at least 3 billion euros ($4.1 billion), in which Dongfeng and the French state would take equal stakes of about 20 percent, people familiar said last month. Peugeot, which reported a first-half operating loss in its automotive unit of 510 million euros, is looking to raise money for development spending and to expand outside Europe, where demand is at a two-decade low.

Peugeot, Europe’s second-largest automaker, dropped 76 cents, or 7 %, to 10.17 euros at the close of trading today in Paris. The stock has gained 86 % this year, valuing the French manufacturer at 3.61 billion euros.

A smaller Dongfeng stake would potentially give the state, interested in protecting jobs and retaining the automaker’s base in France, greater say. Some in the Peugeot family, which owns 25.5 %, are concerned about the French government’s increased influence and want guaranteed board seats or other protections as a counterweight after a capital increase likely dilutes their holding, the people said.